5 Value added taxation
| (31234)
17760/09
COM(09) 672
| Draft Council Regulation laying down implementing measures for Directive 2006/112/EC on the common system of value added tax (Recast)
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| Legal base | Article 397 of the VAT Directive; — ; unanimity
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| Document originated | 17 December 2009
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| Deposited in Parliament | 6 January 2010
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| Department | HM Treasury
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| Basis of consideration | EM of 13 January 2010
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| Previous Committee Report | None
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| To be discussed in Council | Not known
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| Committee's assessment | Politically important
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| Committee's decision | Not cleared; further information requested
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Background
5.1 In 2006, Council Directive 2006/112/EC, the VAT Directive,
which entered into force on 1 January 2007, consolidated the legislation
governing value added taxation in the EU.[12]
Article 397 of the VAT Directive says "The Council, acting
unanimously on a proposal from the Commission, shall adopt the
measures necessary to implement this Directive." Article
398 establishes "the VAT Committee", a Commission-chaired
advisory body, to examine questions raised by the Commission,
or Member States, in order to agree how the provisions of the
Directive should be applied, where there is some doubt.
The document
5.2 With this draft Regulation the Commission proposes a recast
(that is codification, or consolidation, together with some substantive
amendment) of Council Regulation (EC) No 1777/2005, which prescribed
the implementing measures for the pre-2007 VAT legislation.[13]
The aim of the proposal is to provide clear and uniform interpretation
of selected areas of the VAT Directive.
5.3 In addition to recasting the measures in
Council Regulation (EC) No 1777/2005 to reflect the structure
and numbering of the VAT Directive, there are articles in the
proposal derived from guidelines as to how the VAT Directive's
provisions should be interpreted, which have been unanimously,
or nearly unanimously, agreed by Member States in the VAT Committee.
New measures proposed are of three types:
- Guidelines agreed within the
last year that are directly linked to the changes to the rules
for "place of supply" in Council Directive 2008/8/EC,
which entered into force on 1 January 2010[14]
— there are 30 of these, forming by far the largest and
most significant category of measures;
- four Guidelines relating to different elements
of the VAT Directive which were agreed in the VAT Committee prior
to adoption of Council Regulation (EC) No 1777/2005, but which
for various reasons were not included within it; and
- four Guidelines relating to different elements
of the VAT Directive which have been agreed in the VAT Committee
since adoption of Council Regulation (EC) No 1777/2005.
The Government's view
5.4 The Financial Secretary to the Treasury (Mr
Stephen Timms) comments first that the primary objective of the
proposal is to facilitate the smooth entry into force of the "place
of supply" changes and provide certainty for business
and that, in effect, it puts in place further detail to support
the implementation of those changes and is thus a continuation
of that work. He says that, although this is broadly
welcome and the Government supports the objectives in
principle, it has identified a small number of issues
on which it proposes to undertake some further analysis and
consult with UK business. The Minister adds that the Government:
- also needs to ensure sufficient
time is built into the discussions of the proposal to enable the
detail to be tested against commercial transactions undertaken
under the new "place of supply" rules, before being finally
consolidated into a legally binding Regulation; and
- will therefore continue to work with business
to monitor what happens in practice and to obtain a clearer picture on
these issues.
5.5 Turning to other new provisions in the draft
Regulation the Minister says that these, which the Government
supports, cover a range of topics which broadly reflect the Government's
existing approach or which provide welcome clarifications. He
gives as an example defining the elements of a body to be set
up as a European Research Infrastructure Consortium, so as to
enable such a body to benefit from the VAT reliefs for international
bodies. The Minister comments that while it would be desirable
to achieve agreement to this category of new measures, they are
not as important as the "place of supply" category.
5.6 Commenting on the recasting of Council Regulation
(EC) No 1777/2005, the Minister says that the Government supported
the introduction of these measures in 2005 because they ensured
consistency of VAT treatment across the EU, especially for businesses
engaged in the cross-border supply of services such as electronic
services. He notes that they helped to avoid double or non-taxation
and that they remain relevant. He says that the Government fully
supports the need to update the text so as to ensure that all
the legal references are correctly aligned with those in the VAT
Directive.
Conclusion
5.7 Clearly, this draft Regulation will serve
a useful purpose and we recognise that the draft is largely unexceptionable.
Nevertheless, before considering the document further we should
like to hear from the Government about progress in improving the
text in the light of its further analysis and its consultations
with UK business. Meanwhile the document remains under scrutiny.
12 (25558) 8470/04: see HC 42-xx (2003-04), chapter
23 (18 May 2004). Back
13
(26014) 13394/04: see HC 42-xxxv (2003-04), chapter 12 (3 November
2004). Back
14
(26739) 11439/05: see HC 34-v (2005-06), chapter 6 (12 October
2005), HC 34-xv (2005-06), chapter 3 (18 January 2006) and Stg
Co Debs, European Standing Committee B, 16 February 2006,
cols. 3-20. Back
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